Palo Alto Weekly

Spectrum - March 29, 2013

For now, a required 'public benefit' slips away

Closure of Miki's market leaves Alma Plaza developer with 37 homes, city with no grocery store

There is plenty of blame to go around in any assessment of why Miki's Farm Fresh Market will have to close its doors next week, after less than six months as the anchor tenant of the made-over Alma Plaza site near the intersection of East Meadow Drive and Alma Street.

Certainly the building's awful placement, within a few feet of busy Alma with tight access and minimal parking, and the operator's lack of working capital contributed to its short run.

But leading to these problems was the city's poor handling of the redevelopment of this land in the first place. While many saw this train wreck coming before ground was even broken for what became primarily a housing development, many Palo Altans didn't tune into the issue until construction of the grocery store, right along Alma Street, began.

It is but another example of what's wrong with the city's "planned community" deals with developers that attempt to extract valuable public benefits from a developer who wants to exceed normal zoning limits.

In the case of Alma Plaza, owner-developer John McNellis chose a strategy of simply outlasting those who stood in the way of his desired housing development. For years, he allowed the former neighborhood shopping center to become an eyesore and a symbol of government obstructionism.

McNellis acquired the run-down 4.2-acre site of a shuttered Albertsons market in 2005, and then withstood numerous efforts by neighbors and city officials to create an upgraded neighborhood-serving retail center with a decent-sized grocery store. Instead, he wanted to convert the land to housing, a much more lucrative development, and offered a community meeting room and a small grocery store as the public benefits he would provide in return for approval to build 37 very cramped single-family homes.

After two years and 15 hearings, in January 2009 the City Council finally gave in, over the objections of the Planning and Transportation Commission and many residents, allowing McNellis to build the homes, a 5,000-square-foot retail building now occupied by Starbucks and a physical therapy office, a grocery store and 14 below-market-rate apartments above the store.

Finding a grocer interested in the space proved difficult.

After announcing that Michael "Miki" Werness would operate the store, there were many challenges for the former manager of Berkeley Bowl. He patterned Miki's after Berkeley Bowl, with a wide variety of organic produce and specialty foods and wines, and it found a following, but not large or quickly enough given his lack of working capital. A respected and well-liked grocer, he was able to persuade vendors to help him and attracted talented managers and employees, but in the end there were too many strikes against his operation. As just one example, due to the home construction behind the store, there was no way for the immediate neighborhood to even access the store without driving around the block.

For McNellis, who received the right to build the second phase of his housing project as soon as Miki's opened, his task now is to find another grocer who is willing to take a crack at the Miki's location. Under the terms of his development approval, he must maintain a grocery store in perpetuity, so the buildings cannot be used for another type of use.

But that stipulation does little to outweigh the mistake in judgment that permitted the conversion of this neighborhood retail space to housing in the first place. Construction and sale of 37 single-family homes on this site brings our community no public benefit, only private financial gain for the developer.

The recent history of Alma Plaza goes back to late 1997, when owner Albertsons sought approval to triple the size of the store to 50,000 square feet. Neighbors were strongly opposed, and the plans lapsed until 2003, when Albertsons offered another plan that included an enlarged store, rebuilding the center's retail area, construction of five single-family homes and stacking low-income apartments above the stores. The plan cleared all city commissions except the City Council.

A year later the plan was withdrawn, and in 2005 McNellis purchased the property and the grocery store closed later in the year.

Back then neighbors circulated a petition calling on the city to keep Alma Plaza as primarily retail. The neighbors said they wanted to see a "quality, affordable" grocery store, a post office, an ATM, a coffee shop, a dry cleaner, a bakery and a sewing service.

But McNellis had other plans and outlasted the petitioners and city planners. The site became a symbol of the long, tortured Palo Alto "process" and the City Council became focused only on getting the abandoned, ugly site redeveloped. We are now left with the permanent impacts of that ill-conceived decision.

We hope one unanticipated public benefit of this project will be a complete overhaul of the planned-community zoning system, something we have urged for decades and which the planning commission established as a priority at its meeting Wednesday night.

Posted by The Blame Game, a resident of Midtown
on Mar 29, 2013 at 6:34 am

The editor seems intent on laying the blame for this fiasco on the developer, John McNellis.
They state that after buying the center in 2005 he withstood numerous efforts by neighbors and city officials to create an upgraded neighborhood-serving retail center with a decent-sized grocery store.
It is not until the end that you find out that in 2003, Albertsons offered a plan that included an enlarged store, and rebuilding the center's retail area. What happened??? the city council did not go along. Why???? The Weekly does not tell us, but shift back to blaming McNellis
The editors skip the rest of the story--Albertsons got fed up and sold the center to McNellis with a clause limiting the size of any new store that would be built.
So isn't the City Council to blame? Do not forget the Charleston Road moratorium that was decided on by the council in the dead of night, even though it was not on the meeting agenda. That was also a nail in the coffin of Alma Plaza.

Posted by Anon, a resident of Another Palo Alto neighborhood
on Mar 29, 2013 at 6:45 am

The biggest issue with Miki's is that unless you live in the complex itself, you will drive there. There won't be enough business to sustain a store like Miki's as a walk-in location.

The second biggest issue is size-- we now know, based on success and failure of other grocery stores, that a full-service grocery store needs 24,000 square feet.

The third issue though was the business plan. The owner sounds like a great manager, but, it usually takes two years to establish a new business firmly. With only six months of operating expenses in the bank, it was a pretty big gamble from the start.

Posted by Resident, a resident of Another Palo Alto neighborhood
on Mar 29, 2013 at 8:12 am

My take is that I blame the City and the NIMBY attitude of several local residents.

The City should lead, take note from the people but not the vocal minority. There should have been surveys of all local residents and market research, not just listening to who was making the most noise.

The City needs to reach out to the community to hear what we think. We can't all spend hours on Monday evenings waiting for the opportunity to give a couple of minutes opinion. We can't all be expected to come to a one time community outreach meeting on a midweek evening. But, we can be reached by telephone surveys and mail surveys, and these would reach everyone within a proposed catchment area to a proposed development.

Rather than spending money on experts, spend the money on old fashioned market research by those who are expert in surveying the public.

If I remember correctly, it was the neighbors that didn't want the new, largerr grocery store. The one thing thst has often puzzled me is why neighbors get so much of an opinion for replacing existing structures. Unfortunately, it is now an ugly, forbidding structure with housing that doesn't seem to be selling.

Posted by jake, a resident of Community Center
on Mar 29, 2013 at 8:39 am

I'm very certain Miki's will be a success if they let it run for 6 more months. The business plan is just wrong or plan to be wrong!

Posted by The Blame Game, a resident of Midtown
on Mar 29, 2013 at 8:54 am

Apparently McNellis is now suing Miki for back rent after originally telling him he would not have to pay rent for the first year! I suspect Miki was a little naive in accepting John McNellis' word as bond, when he should have gotten it all in writing. Now it is just , " he said, he said". Perhaps there were witnesses to the conversation.

I for one never saw any advertising for Miki's, anywhere. That is probably why most people in Palo Alto did not know it existed in time to try going there. Another na´vetÚ on Miki's part...you have to get the word out. It is a tax deductible expense.

The original customer base that Miki's was supposed to serve, the very reason the store is built backwards and the parkinge lot is in the back, never materialized. That is probably because the housing development being built there is much too expensive for what a buyer gets: poor location, lots of noise, close-set, three story houses on impossibly small lots, high price, poor layouts, and many of the necessities at an additional cost. Oh, and they are poorly constructed out of obviously cheap materials. So hardly any have sold, even in this "hot" housing market. They are a rip- off.

Like everyone has mentioned previously, Miki's was pretty much doomed from the start.

Posted by Resident, a resident of Another Palo Alto neighborhood
on Mar 29, 2013 at 11:27 am

So is it true that the houses are not selling?

This surprises me slightly as almost anything being built in the Gunn area of Palo Alto seems to be sold very quickly. It just may be that the market for new townhomes is saturated and the poorest of the crop are the least interesting to potential buyers.

Posted by South PA resident, a resident of Charleston Meadows
on Mar 29, 2013 at 5:15 pm

The blame game from Midtown says: "It is not until the end that you find out that in 2003, Albertsons offered a plan that included an enlarged store, and rebuilding the center's retail area. What happened??? the city council did not go along. Why????

In 2003 Albertsons wanted to build a 50,000 sq. ft. grocery store, well over the 20,000 sq. ft. city building code for stores. The neighbors all complained and said it was too big and would attract too many vehicles. Albertson's would not accept a 20,000 sq. ft. store and they were not prepared to fight. Albertson's then just turned around and sold the whole property to McNellis and made a nice little profit and walked away.

With these mega Safeways on Palo Alto's border in Mountain View and Menlo Park, limiting grocery stores to 20,000 sq. ft. is ridiculous.